Confidence in shipping’s prospects is always a question of how tightly you tailor your outlook horizon. The default focus is the recovery that lies ahead. During even the direst downturn, shipowners can still be heard talking up the countercyclical play as they identify the singular, microscopic green shoot in the distance, such is the pathological optimism of the industry. However, this year’s outlook has turned such thinking on its head. Amid the general geopolitical disorder and coronavirus chaos, there exists a sliver of stability — albeit a wholly temporary one. Looking solely at the immediate fundamentals for 2022, a positive year lies ahead for the shipping markets. The stellar profits may have peaked along with supply chain disruption, but earnings will continue to be considerably higher than pre-coronavirus levels and demand and supply are set to be broadly in balance for the global shipping industry next year. Sure, those prepared to look a little longer-term and accept a more objective, clear-eyed assessment of the long list of risk factors that lie ahead may want to moderate their new year cheer — but let’s at least start with the good news.

Seaborne trade volumes have largely regained their lost territory and, for once, demand has not been scuppered by its old foe supply. A purely statistical look at the past 12 months shows how a combination of healthy growth in tonne-mile demand and widespread logistical disruption has managed to outweigh the limited expansion of the world fleet. The absence of coal shipments from Australia to China, more iron ore from Brazil, container tonnage tied up in Covid-induced congestion all played their part — but the headline here is more volume in 2021 and more activity for most trades. And this rarest of opportunities has had a free run. According to Lloyd’s List Intelligence data, fleet growth barely touched 3% in 2021, while total seaborne trade was up 5%. The fact that scrapping was up 24% in dwt terms was neither here nor there.

Even accounting for the uptick in tanker and offshore removals amid deeply unprofitable markets, these levels were still relatively low, coming as they did after almost no scrapping in 2020 due to Covid restrictions. So 29m dwt in 2021 had very little impact on the global view of the 2.3bn dwt fleet. Heading into 2022, that favorable balance remains in place. Demand growth for dry bulk and containers will moderate next year in absolute terms — but relatively speaking, it will remain high, and the limited influx of new vessels will sustain the broadly positive conditions. Even in tankers, where five consecutive quarters of depressed rates have clearly taken a toll on the preternaturally positive chief executives, there is at least now a consensus that the market has troughed. Omicron, of course, could yet delay the rate recovery again, but as the accepted laws of shipping market physics describe: if things can’t get much worse, they can only eventually get better. But — and there are inevitably several buts to follow — this temporary equilibrium cannot be read without the context of what will ensue in terms of short-, medium- and long-term risk.

The industry is heading into a seismic period of uncertainty where any brief period of balance should be viewed as a welcome respite from the turbulence rather than a signal of sustained positivity. So, let’s consider the short-term disrupters directly ahead. The immediate implications of the 35 mutations on Omicron’s spike protein are simultaneously obvious and unknowable at the point of writing, but the world has just received a rude reminder that the virus’s path to becoming an endemic disease will not be smooth. Diminishing economic disruption and uncertainty, stemming from the pandemic, and ensuing supply-side bottlenecks, bode well enough, but next year will herald a new phase in the recovery, driven by distinct shifts in the key macroeconomic trends.

The recovery will be uneven. It will take place amid a very uncertain monetary policy backdrop and, while the more conservative community of economists seem confident enough that inflation will fall back in 2022, it remains a key concern for shipping. When Lloyd’s List polled its readership early in December, 21% flagged inflation as the most significant factor affecting shipping markets over the next two years, citing the negative effect on everything from consumption and the demand for goods, right down to financing available for ships. Prospects of a slowdown in retail demand may be the talk of supply chain analysts, but the bigger risk factor keeping shipping executives awake at night — as it has been for several years now — is a slowdown in China. As China goes, so goes the global economy and with Beijing cracking down on economically critical sectors and high corporate debt with an aggression unmatched by any other government, the Middle Kingdom’s economic gearchange has been visible this year. A continued slowdown of growth in China would inevitably cast a long shadow over shipping markets. It would also dampen commodity prices, admittedly reducing the prospects of sustained inflation, but we should be careful about making long-term predictions based on short-term market movements. There is a lot of noise around the freight markets, all caused by the pandemic, as well as policy noise in China as President Xi considers what to do about the property sector. Yet in macro terms, the combination of comparatively sluggish growth in China, a rebound in India, some growth in Russia, and near-term acceleration in advanced economies leave most economists sticking with the forecast of global expansion in 2022, with real GDP likely to rise between 4%-4.5%. Such predictions, of course, come with a large coronavirus variant-shaped caveat.

For shipping, the mid-term risks are more significantly related to the energy transition, which has finally started to hit home in a tangible way this year. Following several years of aspirational rhetoric and easy promises on decarbonization, the deadlines are starting to close in, and decisions are required. Those dual-fueled green pioneers already on the water are not utilizing their theoretical environmental-enhancing liquefied natural gas tanks because the price is predictably prohibitive. And, while the maritime equivalent of a Toyota Prius running with its battery temporarily disconnected could be a short-term sideshow, it is a situation that has hammered home the pricing volatility ahead in this difficult transition. More than 45% of the respondents cited regulatory uncertainty as being the greatest risk to shipping businesses over the next five years, indicating a growing concern about the pace and uniformity of climate measures due to be imposed on the maritime sector. This year’s COP26 climate talks may not have melted the glacial pace of regulatory progress in shipping, but this year the priority has noticeably shifted to the quick wins and first-mover projects that can create demand signals and secure public sector and private investment quickly.

The pace of change is not being led by shipping; rather its customers and financiers are forcing the decisions, while the phase of setting idealistic emissions-reduction goals down the line is coming to an end. Those shipowners brave enough to look beyond this immediate set of challenges are now considering the prospects of a multi-tiered industry in which scale and access to environmental, social, and governance-compliant cash determine business models and access to markets. And don’t forget that this energy transition — which, to date, has been viewed as a long-term risk and treated accordingly — will translate into periods of extraordinary volatility in not only commodity prices, but also seaborne trade volumes. The fact that this comes with a long list of associated risks, from a looming workforce skills crisis to a debt crisis to managing the existing fleet to zero-carbon, only serves to remind the current C-suite generation that their strategic planning is going to have tangible consequences that will be felt under their tenure, as well as that of their successors. Next year may not be the one in which owners address the existential threat looming over them, but there is no hiding from the fact that this industry must transition away from fossil fuels as the dominant marine energy source within the lifespan of today’s newbuilt ships — and do so amid unprecedented regulatory, financial, and technical uncertainty. So, enjoy the relative calm of Omicron threatening to disrupt 2022’s brief window of balance, because it will not last.